NEW DELHI: As Government of India embarks on another attempt to privatise debt-ridden national carrier Air India, aviation industry experts and policymakers believe that unless the government liberalises its conditions attached to the privatisation proposal, the carrier is unlikely to see any buyers anytime soon.
According to sources in the Ministry of Civil Aviation, the government’s decision to retain 24% stake in the airline was one of the major concerns among companies that were willing to bid for the airline, while the huge debt that the airline carries was a problem too.
“Concerns were expressed by potential buyers regarding the management control they would have post the ownership of the airline and many did not want to remain just a financial shareholder of the company,” a source in the Ministry of Civil Aviation said.
Vijay Pal Dalmia, a senior advocate tracking the airline industry, and Partner, Vaish Associates, told The Sunday Guardian, “The huge debt and the liabilities that Air India carry as a baggage are the prime reasons we see no takers for the national carrier. Air India also has a huge spare manpower which the new private owner might want to get rid of. But the employees have a strong union with a strong bargaining power, which can call for strikes. This could hamper the operations of the airline and give nightmares to the new owner of the airline.”
“Moreover, Air India is a huge company and finding a buyer for such a big company with such a huge valuation is another problem. But in my view, the government is not in a weak position and in that case it should not tone down its Expression of Interest (EoI),” Dalmia added.
Air India has a debt of around Rs 31,000 crore after the government decided to take over Rs 29,000 crore off its books. This has also reduced the airline’s interest burden from Rs 2,400 crore to Rs 1,700 crore annually.
Government of India has said that it is committed towards the strategic disinvestment of Air India. Minister for Civil Aviation Hardeep Singh Puri apprised the Rajya Sabha recently about the government’s intention towards disinvestment of the debt-laden Air India.
Puri recently said that the government had no business running an airline and further said that he believed that the government should fully exit from Air India.
This led to speculation that the government was likely to divest 100% of its stakes in Air India. According to sources, government is mulling to bring out the EoI (Expression of Interest) document for the disinvestment of Air India by October this year.
Jitender Bhargava, former Executive Director of Air India, believes that the government has learnt its lesson from the last time it brought out the EoI document in May last year, to divest Air India, but found no buyers.
Bhargava told The Sunday Guardian, “I am sure that the government must have realised its mistakes and would move in the correct path this time. Last time, the government attached conditions on the buyer and this time, hopefully, it will not put any condition that will jeopardise investment in Air India and ensure that investment becomes a lucrative proposition.”
Bhargava is also hopeful that this time the Maharaja will find a taker as he believes that this is the right time, as Jet Airways—one of the full-service carriers and the biggest competitor of Air India—has ceased its operations, making the competition much less and the airline (Air India) more viable.
Air India, along with its subsidiaries, has a fleet of 172 aircraft. Air India is also the only full-service Indian carrier that has the widest network. It is the only Indian airline that flies to destinations like the United States, Europe, Australia and Canada. With Jet Airways gone from the Indian market, it is believed that Air India has the possibility to turn itself around into a profit-making company with better marketing strategies and better service.
Air India also has a huge number of assets and networks across the globe. It also has four subsidiary companies—Air India Air Transport Services Ltd (AIATSL), Airline Allied Services Ltd (AASL), Air India Engineering Services Ltd (AIESL) and Hotel Corporation of India Ltd (HCI)—making the valuation of the company huge.
The government has, therefore, decided to sell the subsidiary companies as different entities. According to government sources, the ground handling operations of Air India would be divested separately, the air transport services separately, the engineering service separately and so on. This, according to sources, has been decided to ease the divestment process, as specific companies could bid for Air India’s specific businesses.
However, Harsh Vardhan, senior aviation expert and director of Starair Consulting, believes that red tape and the bureaucratic nature of Air India also come as an impediment for the new buyer.
He said that the new buyer would like to get rid of the bureaucratic nature of the airline and focus on its commercialisation and making it professional. This could face some resistance from the strong unions of Air India employees.
Harsh Vardhan also thinks that the present economic situation in India is not conducive for Air India’s disinvestment. He said, “This is not the right time to bring disinvestment of Air India to the table. The economic situation in India is not viable and there is so much uncertainty in the market. Moreover, investors want to look at assets without red tape and Air India will have to get rid of the red tape.”